Effective January 1, 2009, most 403 (b) plans will need to comply with new IRS regulations. These new regulations are extensive and will make 403 (b) plans look and operate more like 401 (k) and 457 (b) plans. Here are a few of the major changes.
403 (b) plans will now be required to have a written plan document. The document must contain all terms and conditions for plan features such as eligibility and benefits. 403 (b) provisions are materially different from 401 (k) s and in many instances, this new document will override and change features that are currently in place with existing 403 (b) plans. 403 (b) s can be either an ERISA or non-ERISA plan. Implementing a written document does not need to change the status of an existing plan. An advisor can help determine if there is a change in status or in an employer's fiduciary obligation.
Funding contracts for 403 (b) plans (both annuity and custodial account contracts) must meet new accounting requirements and contain specific language.
One of the largest changes is the elimination of the 90-24 transfer. Participants often used this transfer to move money between plans, often without the sponsor's knowledge or approval. Effective January 1, 2009, 90-24 transfers are no longer allowed. In preparation for the new regulations, transfers that occurred from September 24, 2007 to December 31, 2008 required additional reporting and approvals.
Like 401 (k) s, 403 (b) plans will now be eligible for plan termination. However, it may be easier said than done. The requirements for terminating a 403 (b) are more complex and the process will take much longer than terminating a 401 (k).
Plan Sponsor Next Steps:
If they have not done so already, a Plan Sponsor should consult with legal counsel or an administrator to see how to best handle their current plan. A decision may be made to maintain, consolidate, freeze or terminate their plan. An administrator can then develop an appropriate implementation plan.